Israel has rejected US demands for an immediate withdrawal of Israeli troops from all Palestinian-controlled areas.

Israel, as any other democratic country, is exerting its right to self-defence and the defence of its citizens

Israeli prime minister's office statement

Prime Minister Ariel Sharon said his forces would not pull out from six West Bank towns until the Palestinians handed over those responsible for killing Israeli Tourism Minister Rehavam Zeevi.

He was responding to what has been described as America's strongest denunciation yet of the Israeli incursion, after the State Department said Israeli actions had contributed to a significant escalation in tension and violence.

The stand-off comes as Israeli Foreign Minister Shimon Peres was due to meet Secretary of State Colin Powell in Washington.

In Israel, envoys from the US, Russia and the European Union were due to meet Israeli officials to press for an end to recent violence. The same envoys met Palestinian leaders on Monday.

The latest Israeli-American impasse came as news emerged of the killing of a Hamas activist in the West Bank.

Hamas blamed Israel for the death of Ayman Halaweh, who was killed in a blast in a car in Nablus. Israeli officials made no comment.

On Monday night, Israeli army units moved into Palestinian refugee camps in Rafah in the Gaza Strip, according to Palestinian security officials.

They said Israeli tanks and bulldozers demolished three homes; there was no comment from the Israeli army.

'No compromise'

US State Department spokesman Philip Reeker said Israeli forces should be withdrawn immediately from the West Bank towns, and that no further incursions should be made.

Hamas blames Israel for the killing of one of its activists

He also urged the Palestinian leader, Yasser Arafat, to arrest those responsible for last week's assassination of the Israeli tourism minister and to move decisively against those planning further acts of terror.

The BBC State Department correspondent says the statement did not endorse Israel's demand for the suspects to be handed over to them.

But Mr Sharon's office insisted there would be no compromises until Mr Zeevi's killers were extradited.

"The murder of Rehavam Zeevi crossed the red line and Israel, as any other democratic country is exerting its right to self-defence and the defence of its citizens," a statement from the prime minister's office said.

Enforcing the ceasefire

Mr Arafat, during a meeting in Gaza with envoys from the US, Russia, the European Union and the United Nations, had earlier called for President George W Bush to put pressure on Israel to withdraw its tanks.

The envoys urged him to enforce the battered ceasefire agreement with Israel.

At least two other Palestinians were reported killed on Monday in continuing clashes on the West Bank - one an elderly man shot in his home as a gun battle raged outside.